Newton v. Cox

Decision Date09 May 1994
PartiesWilliam P. NEWTON, Plaintiff-Appellant, Attorney General, State of Tennessee, Intervenor-Appellee, v. James S. COX, Defendant-Appellee.
CourtTennessee Supreme Court

James F. Schaeffer, Jr., Memphis, for appellant.

Robert L. Green, Memphis, for defendant-appellee.

Charles W. Burson, Atty. Gen. and Reporter, Sue A. Sheldon, Asst. Atty. Gen., Nashville, for intervenor-appellee.

OPINION

ANDERSON, Justice.

We granted this application to determine whether the Medical Malpractice Claims Act, which regulates contingent attorney fee contracts, establishes a cause of action for its violation. 1 A second question is whether the Act violates the United States or Tennessee Constitutions. The Court of Appeals held that the statute is directed to the judiciary and, therefore, no cause of action is available against an attorney for its violation. As a result, they did not reach the constitutional issues. We have determined that the statute does establish a cause of action for its violation. Accordingly, the attorney fee contract in this case is voidable because it violates the public policy enunciated by the statute. We also conclude that the statute does not violate the United States or Tennessee Constitutions.

FACTUAL BACKGROUND

In February 1984, plaintiff William P. Newton underwent an angioplasty procedure in Baptist Hospital in Memphis, Tennessee. During the procedure, he suffered an air embolism of the brain which caused him to become comatose. Newton was rushed to Duke University Hospital by air ambulance for treatment in a hyperbaric chamber to dissolve the air in the brain. Thereafter, he was transported to Emory University in Atlanta for rehabilitation. While at Emory, William P. Newton and his wife, Shirley Newton, employed the defendant attorney, James S. Cox, to represent them in a medical negligence case, which they alleged arose out of the angioplasty procedure. On March 25, 1984, Newton and his wife signed a contingency fee contract with Cox which provided that:

[i]t is agreed to pay the law firm of James S. Cox and Associates a sum equal to the following: Fifty (50%) percent of the gross proceeds of recovery by compromise before litigation; or fifty (50%) percent after litigation is instituted and filed.

Cox did not advise Newton or his wife of the existence of Tenn.Code Ann. § 29-26-120, which provides as follows:

Compensation for reasonable attorneys' fees in the event an employment contract exists between the claimant and his attorney on a contingent fee arrangement shall be awarded to the claimant's attorney in a malpractice action in an amount to be determined by the court on the basis of time and effort devoted to the litigation by the claimant's attorney, complexity of the claim and other pertinent matters in connection therewith, not to exceed thirty-three and one-third (33 1/3%) percent of all damages awarded to the claimant. (Emphasis added).

In June 1984, Cox filed a medical malpractice complaint on behalf of Newton against Baptist Hospital and Dr. Samaha, who performed the angioplasty procedure, alleging medical negligence which resulted in Newton's injuries and damages. In June 1985, the medical malpractice claim was settled for $225,000. In accordance with the fee contract, Cox received an attorney fee of 50 percent of the gross proceeds of the settlement, or $112,500.

Shortly after the settlement, Newton and his wife began divorce proceedings. During the pendency of the divorce action, Newton first discovered the existence of Tenn.Code Ann. § 29-26-120. As a result, Newton filed suit against Cox seeking to recover $37,500 plus interest, the difference between the 50 percent attorney fee ($112,500) provided for in the contract and the 33 1/3 percent maximum attorney fee ($75,000) set out in the statute.

Cox admitted that the attorney fee charged was in excess of the 33 1/3 percent set out in the statute, but asserted that the statute was unconstitutional. After a bench trial, the trial court ruled that the statute was unconstitutional because it violated the defendant's rights to due process and equal protection under the Fourteenth Amendment to the United States Constitution and Article I, § 8 and Article XI, § 8 of the Tennessee Constitution, and because it violated the separation of powers provisions of Article II, §§ 1 and 2, and Article VI, § 1 of the Tennessee Constitution.

The Court of Appeals did not reach the constitutional issues because it held that the statute "directs its mandate to the trial court as to what the court should do in setting a reasonable fee, rather than to the attorney." Accordingly, the Court of Appeals held that the plaintiff had no cause of action against the defendant pursuant to this statute. We granted the application to determine the important questions raised in this appeal.

APPLICABILITY OF TENN.CODE ANN. § 29-26-120

The plaintiff Newton argues that as a member of the public, he is clearly within the class of persons intended to be the beneficiary of Tenn.Code Ann. § 29-26-120, and that a cause of action exists for the statute's violation. Moreover, according to Newton, the statute which limits attorneys' contingency fees in medical malpractice claims was intended by the Legislature to increase the damages injured citizens received as a result of medical malpractice.

On the other hand, the defendant Cox argues that a fair and reasonable construction of the statute is that it does not place any limitation upon the percentage of recovery that an attorney may contract for in a contingent fee contract in a medical malpractice action. Rather, it imposes a duty on the trial courts only to determine a reasonable attorney fee in cases where there is a contingent fee contract in a medical malpractice action. As a result, there is no cause of action against an attorney who violates the statute.

The Medical Malpractice Review Board and Claims Act was enacted in 1975 by the Legislature to contain the cost of medical malpractice litigation because of the perceived medical malpractice insurance crisis that existed at that time. See Harrison v. Schrader, 569 S.W.2d 822, 826 (Tenn.1978). The Act contained a number of restrictive measures, including a statute of repose, limitations on expert testimony, a collateral source rule, and the limitation on attorneys' fees. As we noted in Harrison, the Legislature saw the Act as a means of controlling the cost of health care and benefiting the general welfare of the State's citizens. 2

At the time of its enactment in 1975, Tenn.Code Ann. § 29-26-120 provided that attorneys fees were to be awarded to the claimant's attorney in a malpractice action on the basis of the complexity of the "case." The following year, the statute was amended by deleting the word "case" and substituting the word "claim." A narrow application of the word "case" could describe litigation only, while a broader construction could encompass a cause of action from its inception. "Claim," however, is clearly a broader term encompassing a cause before litigation is filed, as well as after. The guiding principle of statutory construction is to give effect to the legislative intent. Long v. Stateline Sys., Inc., 738 S.W.2d 622, 623 (Tenn.1985). Considering the plain language of the statute without any forced or subtle construction which would extend or limit its meaning, and the amendment to the statute inserting a more comprehensive term, we conclude that the Legislature intended for the statute to apply to all malpractice claims, including settlements before and after litigation is filed. See State, ex rel. Metropolitan Gov't of Nashville and Davidson County v. Spicewood Creek Watershed Dist., 848 S.W.2d 60, 62 (Tenn.1993). It is clear that the Legislature, through the enactment of this statute, has established that the policy of this state shall be that attorneys in medical malpractice cases entering into contingent fee contracts are to receive no more than 33 1/3 percent of the gross recovery of a malpractice claimant as an attorney fee. Tenn.Code Ann. § 29-26-120, therefore, applies to the present case as an enunciation of the public policy of this state.

Having concluded that the statute here under consideration represents a declaration of the public policy of this State, we must next determine whether a contract in contravention of that statute is "void" or "voidable." It is widely recognized that

[a] void contract is no contract at all; it binds no one and is a mere nullity. Accordingly, an action cannot be maintained for damages for its breach. No disaffirmance is required to avoid it, and it cannot be validated by ratification.... A contract wholly void is void as to everybody whose rights would be affected by it if valid.

17A Am.Jur.2d Contracts § 7 (1991) (footnotes omitted).

In contrast,

a voidable contract is one where one or more parties have the power ... to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance. Accordingly, a voidable contract is valid and binding until it is avoided by the party entitled to avoid it.

Id.

The prevailing view which has also been applied in Tennessee is that contracts are voidable and not void when they violate statutes enacted for the protection of the public interests or for the protection of the class of persons of which the party seeking to avoid the contract is a member. Herbert v. W.G. Bush & Co., 42 Tenn.App. 1, 298 S.W.2d 747, 752 (1956); Palmer Bros. v. Havens, 29 Tenn.App. 8, 193 S.W.2d 91, 92 (1945); see generally 17A Am.Jur.2d Contracts § 251 (1991).

The contract at issue here violates a statute that was enacted both for the protection of the public and for the protection of medical malpractice claimants, a class of persons of which plaintiff is a member. Accordingly, the plaintiff's cause of action to avoid the contingent fee contract to the extent...

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